Corporate insiders sell their own companies' stock for a number of reasons.
They might need the cash for a big personal purchase such as a new house or yacht, or they might need the cash to fund a charity. Sometimes they sell as part of a planned selling program that they have put in place for diversification purposes, which allows them to sell stock in stages instead of selling all at one price.
Other times they sell because they think their stock is overvalued and the risk/reward is no longer attractive. Some even dump their own stock because they have inside knowledge that a competitor is eating their lunch and stealing market share.
But insiders usually buy their own shares for one reason: They think the stock is a bargain and has tremendous upside.
The key word in that last statement is "think." Just because a corporate insider thinks his or her stock is going to trade higher, that doesn't mean it will play out that way. Insiders can have all the conviction in the world that their stock is a buy, but if the market doesn't agree with them, the stock could end up going nowhere. Also, I say "usually" because sometimes insiders are loaned money by the company to buy their own stock. Those loans are often sweetheart deals and shouldn't be viewed as organic insider buying.
At the end of the day, it's large institutional money managers running big mutual funds and hedge funds that drive stock prices, not insiders. That said, many of these savvy stock operators will follow insider buying activity when they agree with the insider that the stock is undervalued and has upside potential. This is why it's so important to always be monitoring insider activity, but it's twice as important to make sure the trend of the stock coincides with the insider buying.
Recently, a number of companies' corporate insiders have bought large amounts of stock. These insiders are finding some value in the market, which warrants a closer look at these stocks. Here's a look five stocks whose insiders have been doing some big buying per SEC filings.
United Continental
One major airline player that insiders are warming up to here is United Continental (UAL). Insiders are buying this stock into decent strength, since shares are up 9.4% so far in 2014.
From a technical perspective, UAL is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been downtrending over the last few weeks, with shares moving lower from its high of $47.49 to its low of $38.06. That said, shares of UAL have now started to bounce off that $38.06 low, which also happens to coincide with its 200-day moving average.
If you're bullish on UAL, then I would look for long-biased trades as long as this stock is trending above that recent low of $38.06 and then once breaks out above Wednesday's intraday high of $42.17 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 5.06 million shares. If that breakout starts soon, then UAL will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $44.53 a share to more near-term resistance at $48 to $49 a share.
Famous Dave's of America
Another full-service and counter-service restaurant player that insiders are active in here is Famous Dave's of America (DAVE). Insiders are buying this stock into major strength, since shares are up huge so far in 2014 by over 40%.
Famous Dave's of America has a market cap of $184 million and an enterprise value of $197 million. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 42 and a forward price-to-earnings of 19. Its estimated growth rate for this year is 31.1%, and for next year it's pegged at 36.1%. This is not a cash-rich company, since the total cash position on its balance sheet is $1.29 million and its total debt is $19.91 million.
A beneficial owner just bought 36,451 shares, or about $895,000 worth of stock, at $24.56 per share.
From a technical perspective, DAVE is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its low of $23 to its recent high of $26.14 a share. During that move, shares of DAVE have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of DAVE within range of triggering a near-term breakout.
If you're in the bull camp on DAVE, then I would look for long-biased trades as long as this stock is trending above some near-term support at $24 or at $23 and then once it breaks out above some near-term overhead resistance levels at $26.14 to its 50-day moving average of $26.64 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 56,263 shares. If that breakout hits soon, then DAVE will set up to re-test or possibly take out its next major overhead resistance levels at $28 to its 52-week high at $31.99 a share.
Ikonics
One specialty chemicals player that insiders are jumping into here is Ikonics (IKNX), which develops, manufactures and sells photosensitive liquids and films for the screen printing as well as awards and recognition industries primarily in the U.S. Insiders are buying this stock into major strength, since shares are up huge by 84% so far in 2014.
Ikonics has a market cap of $54 million and an enterprise value of $48 million. This stock trades at a premium valuation, with trailing price-to-earnings of 80. This is a cash-rich company, since the total cash position on its balance sheet is $3.17 million and its total debt is zero.
A beneficial owner just bought 4,687 shares, or about $117,000 worth of stock, at $25.09 per share.
From a technical perspective, IKNX is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a major bottoming chart pattern, after shares found buying interest over the last month or so whenever it pulled back to around $24 a share. Shares of IKNX are now starting to spike higher and move within range of triggering a major breakout trade above some key near-term overhead resistance levels.
If you're bullish on IKNX, then I would look for long-biased trades as long as this stock is trending above its 50-day at $25.07 and then once it breaks out above some near-term overhead resistance levels $28 to $29 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 3,745 shares. If that breakout materializes soon, then IKNX will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $31.02 a share. Any high-volume move above that level will then give IKNX a chance to tag $35 to $40 a share.
Titan International
One consumer goods player that insiders are snapping up a huge amount of stock in here is Titan International (TWI), which manufactures and sells wheels, tires and undercarriage systems and components for off-highway vehicles used in the agricultural, earthmoving/construction and consumer markets in the U.S. and internationally. Insiders are buying this stock into notable strength, since shares are up 19% over the last six months.
Titan International has a market cap of $932 million and an enterprise value of $1.3 billion. This stock trades at reasonable valuation, with a trailing price-to-earnings of 27 and a forward price-to-earnings of 18. Its estimated growth rate for this year is -23.1%, and for next year it's pegged at 61.7%. This is not a cash-rich company, since the total cash position on its balance sheet is $189.36 million and its total debt is $572.76 million.
A beneficial owner just bought 842,125 shares, or about $13.85 million worth of stock, at $16.45 per share.
From a technical perspective, TWI is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock is starting to rip higher today and move back above its 200-day moving average of $16.89 a share with strong volume. That move is quickly pushing shares of TWI within range of triggering a major breakout trade.
If you're bullish on TWI, then I would look for long-biased trades as long as this stock is trending above some key near-term support at $16 and then once it breaks out above its 50-day moving average of $18.11 a share to more near-term resistance at $18.18 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 705,316 shares. If that breakout hits soon, then TWI will set up to re-test or possibly take out its next major overhead resistance levels at $19.28 to $19.88 a share. Any high-volume move above those levels will then give TWI a chance to tag $22 to its 52-week high at $25.12 a share.
Aaron's
One final stock with some big insider buying is Aaron's (AAN), which operates as a specialty retailer of consumer electronics, computers, residential furniture, household appliances and accessories in the U.S. and Canada. Insiders are buying this stock into decent strength, since shares are up 10% over the last three months.
The CEO just bought 50,000 shares, or about $1.44 million worth of stock, at $28.96 per share. From a technical perspective AAN is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been downtrending over the last two months, with shares falling from its high of $32.64 to its recent low of $27.95 a share. During that downtrend, shares of AAN have been consistently making lower highs and lower lows, which is bearish technical price action. Shares of AAN have stabilized a bit over the last few days, with shares finding support right around its 200-day moving average of $28.82 a share.
If you're bullish on AAN, then look for long-biased trades as long as this stock is trending above some key near-term support levels at $28.57 or at $27.95 and then once it breaks out above its 50-day at $30.47 a share to more resistance at $31.50 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 1.45 million shares. If that breakout gets underway soon, then AAN will set up to re-test or possibly take out its 52-week high at $32.64 a share. Any high-volume move above that level will then give AAN a chance to tag $35 to $40 a share.
To see more stocks with notable insider buying, check out the Stocks With Big Insider Buying portfolio on Stockpickr.
-- Written by Roberto Pedone
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